Related papers: Toward Economics as a New Complex System
The purpose of this article is to propose a new "theory," the Strategic Analysis of Financial Markets (SAFM) theory, that explains the operation of financial markets using the analytical perspective of an enlightened gambler. The gambler…
The basis of arbitrage methods depends on the circulation of information within the framework of the financial market. Following the work of Modigliani and Miller, it has become a vital part of discussions related to the study of financial…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
Empirical evidence suggests that even the most competitive markets are not strictly efficient. Price histories can be used to predict near future returns with a probability better than random chance. Many markets can be considered as {\it…
Prices in financial markets exhibit extreme jumps far more often than can be accounted for by external news. Further, magnitudes of price changes are correlated over long times. These so called stylized facts are quantified by scaling laws…
A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of…
Equity markets have long been regarded as unpredictable, with intraday price movements treated as stochastic noise. This study challenges that view by introducing the Extended Samuelson Model (ESM), a natural science-based framework that…
In seeking to explain aspects of real-world economies that defy easy understanding when analysed via conventional means, Nobel Laureate Robert Shiller has since 2017 introduced and developed the idea of Narrative Economics, where observable…
Post Modigliani and Miller (1958), the concept of usage of arbitrage created a permanent mark on the discourses of financial framework. The arbitrage process is largely based on information dissemination amongst the stakeholders operating…
In this review article we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions…
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an…
Since the 1960s, the question whether markets are efficient or not is controversially discussed. One reason for the difficulty to overcome the controversy is the lack of a universal, but also precise, quantitative definition of efficiency…
The excessive compensation packages of CEOs of U.S. corporations in recent years have brought to the foreground the issue of fairness in economics. The conventional wisdom is that the free market for labor, which determines the pay…
In the standard equilibrium and/or arbitrage pricing framework, the value of any asset is uniquely specified from the belief that only the systematic risks need to be remunerated by the market. Here, we show that, even for arbitrary large…
Accuracy of economic theories and efficiency of economic policy strictly depend on the choice of the economic variables and processes mostly liable for description of economic reality. That states the general problem of assessment of any…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
In econometrics, the Efficient Market Hypothesis posits that asset prices reflect all available information in the market. Several empirical investigations show that market efficiency drops when it undergoes extreme events. Many models for…
The efficient market hypothesis has been considered one of the most controversial arguments in finance, with the academia divided between who claims the impossibility of beating the market and who believes that it is possible to gain over…
Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is…
The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric…